SEC Filing Summary: Capital Product Partners L.P. (Form 6-K)
Business Context and Reporting Period
This Form 6-K, dated August 29, 2008, provides supplemental financial information for Capital Product Partners L.P. (CPP), an international owner of product tankers. The filing presents supplemental consolidated and predecessor combined financial statements for the years ended December 31, 2007, 2006, and 2005. These statements have been retroactively adjusted to reflect the acquisition of the M/T Amore Mio II and M/T Aristofanis from Capital Maritime and Trading Corp. (CMTC) in March and April 2008, respectively, accounting for these transactions as a combination of entities under common control (pooling of interests).
As of the filing date, CPP's fleet consisted of 18 double-hull, high-specification tankers with an average age of approximately 2.4 years. The company's primary objective is to provide steadily rising distributions to unitholders through medium-to-long-term time and bareboat charters.
Key Financial Metrics (Year Ended Dec 31, 2007)
- Revenue: $86.5 million (Time and bareboat charter revenues).
- Net Income: $31.0 million (Total); $21.6 million attributable to the Partnership.
- Operating Income: $47.2 million.
- Cash Flow from Operations: $53.0 million.
- Cash and Cash Equivalents: $19.9 million.
- Total Liquidity: $115.4 million (including undrawn long-term borrowings).
- Debt: Long-term debt of $281.8 million and related party debt of $63.0 million.
- Depreciation and Amortization: $15.4 million.
- Earnings Per Unit (Limited Partners): $1.11 (Common), $0.70 (Subordinated), $0.95 (Total).
Material Changes vs. Prior Period
Comparing the year ended December 31, 2007, to 2006:
- Revenue Growth: Revenues increased from $24.6 million to $86.5 million, primarily due to a significant increase in the number of vessels in the fleet.
- Expense Increases: Vessel operating expenses rose from $6.8 million to $19.0 million, and depreciation increased from $3.8 million to $15.4 million, reflecting fleet expansion.
- Net Income: Net income grew from $8.4 million to $31.0 million.
- Financing Structure: The company transitioned from historical floating-rate bank debt to non-amortizing revolving credit facilities with interest rate swaps to fix LIBOR portions. Principal repayments are not required until June 2012 (existing facility) and March 2013 (new facility).
- Accounting Adjustments: The 2007 results include retroactive adjustments for vessels acquired in 2008 (M/T Amore Mio II and M/T Aristofanis) to present them as if they were owned for the entire period.
Guidance, Outlook, and Risks
Outlook and Strategy: Management intends to continue strategic acquisitions of newbuildings and second-hand vessels, leveraging relationships with Capital Maritime. The fleet is currently under medium-to-long-term charters (2 to 10 years) with an average remaining term of 4.7 years. Major charterers include BP Shipping Limited (58% of 2007 revenue) and Morgan Stanley Capital Group Inc. (24% of 2007 revenue).
Liquidity and Capital Resources: The company maintains two primary credit facilities: a $370 million facility (existing) and a $350 million facility (new, entered March 2008). As of December 31, 2007, $274.5 million was drawn on the existing facility. The company believes working capital is sufficient for the next 12 months.
Risks and Contingencies:
- Customer Concentration: Heavy reliance on a few major charterers (BP and Morgan Stanley).
- Market Conditions: Results depend on seaborne transportation demand, supply of tankers, and charter rates.
- Debt Covenants: Distributions may be restricted if the company fails to maintain specific financial ratios (e.g., EBITDA to net interest expense of at least 2.00:1) or if the market value of financed vessels falls below 125% of the outstanding debt.
- Interest Rate Risk: Mitigated through interest rate swap agreements, though fair value changes are recorded in accumulated other comprehensive loss.
Investor Verification Checklist
- Verify the retroactive accounting treatment of the M/T Amore Mio II and M/T Aristofanis acquisitions and its impact on historical comparability.
- Confirm compliance with debt covenants, specifically the 125% vessel market value to debt ratio and the 2.00:1 EBITDA to interest expense ratio.
- Assess the concentration risk associated with BP Shipping Limited and Morgan Stanley Capital Group Inc., which accounted for 82% of 2007 revenues.
- Review the terms of the $350 million new credit facility entered in March 2008 and the utilization of funds for recent vessel acquisitions.
- Monitor the status of the three remaining "Committed Vessels" (M/T Alexandros II, M/T Aristotelis II, M/T Aris II) and their delivery/financing status as of the filing date.